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Foreclosure: Will the Bank Take My Home if I Miss a Payment?

September 19th, 2018 at 5:44 pm

Texas bankrutpcy lawyer, Texas chapter 7 attorneyConsumers who struggle to make monthly mortgage payments quickly become overwhelmed with collection calls and letters plaguing the mailbox. Fight or flight instincts immediately kick in, and most people choose to ignore the lender’s collection efforts. Many automatically assume that the bank immediately wants their home and retreat into self-preservation efforts. The truth is, the bank does not want your house. Lenders want you to pay the mortgage, and in most cases, if they can help you make that payment and save your home, they will. If the mortgage lender fails to reach an agreement with the borrower, imminent foreclosure efforts can stay through a bankruptcy filing.

Why Will the Bank Help?

The home you live in belongs to your mortgage lender. When you purchased, they assumed the cost of the home for you with the agreement that you would pay monthly payments until the loan is repaid in full. Until that day, the house belongs to the mortgage company. While they will not typically help someone with no potential benefits for themselves, they also are not in the business of buying and selling real estate either. If lenders must take a house in the foreclosure process, not only do they lose out on the money they would make in your interest payments, they also must pay the legal costs for the foreclosure process and the costs to sell the home, typically for less than the original amount. Lenders ultimately prefer to salvage the mortgage agreement, either by extending the loan or lowering the interest rate. If their borrower fails to communicate, this option is null, and the lender must begin foreclosure proceedings.

Bankruptcy or Foreclosure?

For your lender to recuperate some of their costs, they must have the title “free and clear,” which means they must have possession of the property. You can choose to allow the bank to go through a lengthy foreclosure process or opt to surrender the home through bankruptcy. A foreclosure enables the bank to remove you from your home, sell it for as much as they can make, and still hold you liable for any outstanding balances on the house. Foreclosure does not ensure an end to the collection calls. If you decide to file for Chapter 7 or Chapter 13 bankruptcy, both of which enable you to settle your debts often for pennies on the dollar, an automatic stay immediately halts all collection efforts, including from lenders. This momentary pause in a foreclosure process is sometimes all a family needs to earn enough money to save their home. Otherwise, if you do relinquish your home in bankruptcy, any liability is fully released. The bank cannot contact you if they lose money in the sale of the house.

Contact an Experienced Attorney

Attorneys are as unique as the fields in which they specialize. Like you would not hire a foot doctor for brain surgery, hiring a criminal attorney will not guarantee the best results when you face financial struggles. If you are having a hard time making your payments and are concerned about the future of your home, a New Braunfels bankruptcy attorney can help you get the answers you need. The Law Offices of Chance M. McGhee dedicates 20 years of experience to help you achieve financial freedom. Find out how we can assist you today by calling 210-342-3400 to schedule your free initial consultation.

 

Sources:

https://www.streetdirectory.com/travel_guide/63141/real_estate/why_the_bank_does_not_want_your_house.html

https://www.thetruthaboutmortgage.com/foreclosure-help/

 

The Automatic Stay in Chapter 7 and 13

November 22nd, 2017 at 8:00 am

Filing a Chapter 7 or 13 case both stop creditor collection actions against you just the same. But after that the differences are huge. 


Last time we focused on how you can use the Chapter 7 and Chapter 13 options to your time advantage. Chapter 7 “straight bankruptcy” is very fast. If all or most of your debts can be discharged (written off), that quickness can be an important advantage. But its speed can be a downside. If you are behind on a secured debt, Chapter 13’s 3-to-5-year-long duration can be a crucial advantage. It not only buys you time but gives your protection and flexibility for dealing with such special debts.

So, both bankruptcy options provide protection, but of different kinds. Let’s see how these work to see which would be better for you.

The Immediate Protection

With either kind of bankruptcy you get immediate relief from almost all creditor collection actions.

The “automatic stay” kicks in simultaneously with the filing of your Chapter 7 or 13 bankruptcy petition. Its power is in how fast it works and how strongly it prevents creditors from taking further collection action against you. (See Section 362(a) of the U.S. Bankruptcy Code.)

How Long the Protection Lasts

The automatic stay lasts as long as your case does. So, it expires about 3-4 months after you and your bankruptcy lawyer file a Chapter 7 case. On the other hand, it expires about 3-to-5-years after filing a Chapter 13 case. (See Section 362(c) of the U.S. Bankruptcy Code.)

However, a creditor may be able to end that protection as applicable to that creditor. Creditors usually can’t prevent the automatic stay from going into immediate effect at the beginning of your case. However creditors CAN ask for “relief from the automatic stay.” That is, AFTER the automatic stay goes into effect a creditor can ask the bankruptcy court to make an exception for that creditor and let it pursue you or its collateral.   (See Section 362(d) of the U.S. Bankruptcy Code.)

How does all this all works in practice under Chapter 7 vs. Chapter 13?

Chapter 7 Is Not Designed for Ongoing Protection

As we’ve said, the automatic stay protection lasts just 3-4 months at best under Chapter 7. But in addition, certain important creditors have more reason to ask for “relief from stay” to make that even shorter.

Chapter 7 provides no mechanism for dealing with important debts that you want or need to pay. Consider debts backed by collateral you want to keep, such as a home mortgage or vehicle loan. If you’ve fallen behind there’s no tool under Chapter 7 for catching up. You have to make arrangements directly with the creditor. If you (through your lawyer) and the creditor can agree, that’s fine. But if not, the creditor can file a motion asking for permission to foreclose on or repossess the collateral. It may even do so right after you file your case, before you’ve even started any negotiation. It’s signaling that you better meet its terms or else it wants to take back the home or vehicle.

Chapter 13 IS for Ongoing Protection

Chapter 13 starts with the fact that the automatic stay lasts SO much longer. It lasts a few years instead of a few months. But just as with Chapter 7, under Chapter 13 a creditor with collateral can file a motion asking for permission to foreclose on or repossess the collateral.

The big difference is that Chapter 13 provides a mechanism for catching up on such debts. If you’re behind on a mortgage or loan with collateral, your Chapter 13 payment plan will specify how much you’ll pay each month to catch up. Assuming your proposed terms are sensible, the creditor will likely go along.

A key difference is that Chapter 13 gives you an efficient and effective way to take the initiative. Because creditors know that bankruptcy judges will approve reasonable terms, they don’t object. And they don’t waste their time and money asking for “relief from stay” knowing it would have no effect. Then once your proposed payment plan is formally approved by the judge, creditors must live with your terms.

Be aware that if a creditor thinks your catch-up terms are not reasonable it can object or file a motion. Then usually a compromise can be worked out.

Of course you have to comply with the terms of your plan as approved by the bankruptcy judge. If you don’t, the affected creditor can then file a motion asking to be allowed to pursue the collateral. Depending on the facts you may be given another chance or you may not.

Conclusion

The relatively short period of protection under Chapter 7 may be just fine if you have no surviving debts. Chapter 7 may also be fine if the surviving debt can be handled reasonably through simple negotiation. But Chapter 13 provides longer and stronger protection for you regarding past-due debts secured by collateral you want to keep.

 

Buy Time for Your Home with Chapter 7

October 13th, 2017 at 7:00 am

Filing a Chapter 7 bankruptcy case stops a foreclosure and buys some time to either arrange to keep the home or move in a peaceful way.  

 

Chapter 7 “Straight Bankruptcy” vs. Chapter 13 “Adjustment of Debts”

Speaking very generally, Chapter 7 buys you some time with your home while Chapter 13 buys you much more time.

So the questions are: how much more time to do you need and will Chapter 7 buy you enough?

How Chapter 7 Helps

As to your home, your filing of a Chapter 7 case:

1. Stops a pending foreclosure sale of your home, at least temporarily, through the “automatic stay.” Your bankruptcy filing stops “any act to… enforce any lien against property of the estate.” “Property of the estate” includes essentially everything you own at the time of filing, including your home. See Section 362(a)(4) and (5) and of the U.S. Bankruptcy Code. How much time Chapter 7 buys depends on your situation, as we’ll get into a bit below.

2. It also at least temporarily stops not just foreclosures by your mortgage company, but also by other lienholders. This includes foreclosures for unpaid property taxes, homeowner assessments, or judgment lien creditors. In the case of judgment liens, Chapter 7 may also get rid of them, and the debt underlying it.

3. Prevents, at least for a few months, most kinds of new liens from attaching to your home. So an income tax debt does not turn into a tax lien. A pending lawsuit does not turn into a judgment lien against your home. This is particularly helpful if that tax is old enough to qualify for discharge (legal write-off). And most likely the debt underlying the lawsuit can be discharged. In these situations Chapter 7 protects your home from those debts and anticipated liens.  

Situations When Chapter 7 May Be Enough

Here are some of the main situations when it’s worth filing a Chapter 7 case for your home.

A Scheduled Mortgage Foreclosure

You already have a scheduled foreclosure date, and it’s coming very soon. Your Chapter 7 filing will very likely cancel it. The “automatic stay” protection lasts throughout the 3-4 months that your case is open. So your mortgage lender can restart the foreclosure after that. But the delay may be much shorter if your lender asks the bankruptcy court for permission to restart the foreclosure while your Chapter 7 case is still open. So it depends on the aggressiveness of your lender. Filing under Chapter 7 may buy you an extra few weeks or an extra few months.

  • If you are selling your home and are close to selling it, those extra weeks or months may be all you need to finish the sale and pay off the mortgage.  This only works if the net sale proceeds—your money from the sale—are fully covered by your homestead exemption. Then you keep those proceeds. Otherwise the Chapter 7 trustee would have a right to any proceeds in excess of the homestead exemption.
  • You’re surrendering your home but need to buy more time to gather funds for moving and rental expenses. Your lender might possibly even pay you to move faster (to save itself foreclosure expenses).

 An Anticipated Mortgage Foreclosure

A foreclosure sale date has not yet been scheduled but you think it’ll happen soon. Your Chapter 7 filing will postpone it. As stated above, your mortgage lender can ask the court for permission to proceed with the foreclosure. So how much time your bankruptcy filing buys depends on your lender.

A Debt Expected to Turn Into a Lien

You’re not concerned about a mortgage foreclosure, but rather about a debt turning into a lien on your home. As discussed above, if this is a debt that would be discharged in bankruptcy, Chapter 7 can be hugely helpful. Your Chapter 7 filing stops the placing of the lien, discharges the debt forever, and thus avoids the lien forever.

Even if the underlying debt cannot be discharged—such as a relatively recent income tax debt—your Chapter 7 filing stops the lien at least temporarily. Your bankruptcy case then discharges most or all of your other debts. At that point you can focus your financial efforts on paying the tax. Entering into a formal payment plan may prevent a tax lien from being recorded.

Summary

A Chapter 7 case filed through your bankruptcy lawyer may give you less power than a Chapter 13. It usually only buys you a relatively short amount of time. But the limited power and time it does give may be enough in your particular situation. And it may enable you to discharge a debt, preventing that debt from resulting in a lien on your home.

 

Catching up on Your Mortgage on Your Terms

August 9th, 2017 at 7:00 am

If you’ve fallen behind on your mortgage, it’s very hard to catch up. It may even seem impossible. Chapter 13 makes it possible.

 

The Problem

Let’s say you can’t pay your monthly mortgage because of a job loss or some other major financial hit. The missed payments can pile up fast. The amount you’re behind gets huge fast. It usually takes quite a few months before your home would be foreclosed. That gives time for the missed monthly payments to pile up. For example, if your mortgage payment is $1,700, six missed payments put you $10,200 behind. And that doesn’t count late fees and other likely charges assessed to your account.

If you then find a new job or otherwise fix your financial situation, you’ve got a mountain of mortgage payments to catch up on.

You may qualify for a mortgage modification or refinancing, restructuring that piled up debt, not having to catch up. Or mortgage forbearance may work, in which you must catch up over a relatively short period of time, usually within a year.

But there’s a good chance you can’t qualify for a modification or refinancing. And when money is tight it may be impossible to come up with the substantial extra amount needed each  month—in addition to your current mortgage payment—for catch-up payments. Using the example above, if you had 12 months to catch up on the $10,200 arrearage that would require you to pay an extra $850 per month, on top of your regular monthly mortgage payment. Even after filing a Chapter 7 “straight bankruptcy” to get rid of all or most of your debts, you may simply not have the cash flow to catch up as required.

The Solution: Get Years to Catch Up

If you’re behind on your mortgage, filing a Chapter 13 case usually gives you up to 5 years to catch up.

In a Chapter 7 case you’re largely stuck with however much time your mortgage holder is willing to give you. In Chapter 13 you are much more in the driver’s seat. You and your bankruptcy lawyer put together a payment plan. That plan shows how and when the mortgage will be caught –up during the following 3 to 5 years. That plan works around your budget, giving you enough money for your reasonable living expenses. It takes into account other even more urgent and just as important other debts. So you don’t lose your house because you also owe other debts like income taxes or child support. You can often save both your home and your necessary vehicle(s).

For example, the above $10,200 stretched out over 5 years is about $170 per month. That’s likely much more doable than the $850 per month to catch up within one year.

Does My Mortgage Lender Have to Agree?

The length of time you have and the terms for catching up do depend on your circumstances. Generally, the more equity you have in your home (value beyond its debt) the more flexibility you will have. When there is little or no equity cushion your lender’s debt is not fully protected by the collateral. Then you’ll have to make faster progress on catching up on the mortgage arrearage.

But generally your mortgage lender must give you a number of years—to get current.

However, especially if you have little or no equity in the home and/or you have gotten far behind on the mortgage payments, the mortgage lender could likely impose conditions on the Chapter 13 catch-up payments. These conditions could limit your rights if you didn’t timely pay either the catch-up or regular monthly payment. Such future non-payments could automatically trigger the bankruptcy court’s permission for the lender to start (or re-start) foreclosure proceedings.

So, Chapter 13 gives you a relatively long time to catch up on your missed mortgage payments. But then it’s crucial to comply with the payment plan. Chapter 13 gives you a big second chance, but not necessarily a third or fourth chance.

 

Chapter 13 Buys Time

July 21st, 2017 at 7:00 am

Chapter 13 is very different from Chapter 7 “straight bankruptcy.” It buys you time to deal effectively with your special debts. 


The Main Overall Benefit of Chapter 13

The main benefit of Chapter 7 “straight bankruptcy” is the discharge—legal write off—of your debts.

You also get a discharge in Chapter 13 “adjustment of debts.” But a more immediate and often more important benefit is that you’re protected from collection action by creditors while you pay all or a portion of certain special debts. Those special debts are usually ones that Chapter 7 does not discharge, or does not help in a meaningful way.

Buying Time

Here are some examples of the kinds of debts that buying time under Chapter 13 helps you with.

  • Home Mortgage: If you’re behind on your first mortgage Chapter 13, can give you as much as 5 years to catch up. An ongoing foreclosure is stopped. Future ones can be prevented. This buying of time gives you a much more practical way to save your home. And a much more peaceful one.
  • Recent Income Tax Debts: Taxes that don’t qualify for discharge (usually because they are too recent) are subject to immediate collection as soon as a Chapter 7 is completed. Interest and penalties continue to accrue. In contrast, under Chapter 13 the tax creditors must stop collections throughout the 3 to 5-year payment plan. And generally interest and penalties both stop accruing.
  • Child or Spousal Support: Chapter 7 does not buy you ANY time if you’re behind on support. Chapter 13 stops collection on the arrearage (although ongoing monthly support can continue being collected). You then have time to catch on the support over time, based on what you can afford.
  • Vehicle Loans: If you’re behind on your car or truck, in Chapter 7 you have to catch up in a matter of weeks. Chapter 13 gives you years. And if the debt is more than the value of the vehicle, through “cramdown” you would probably not need to catch up at all. Plus the monthly payment can often be reduced. The term of payments may be stretch out over a longer period of time. These all buy you time. The end result is that you can keep the vehicle less expensively and with less worry.
  • Unpaid Property Taxes: If you’ve fallen behind, just like a mortgage you get years to catch up. And you don’t have to worry about a property tax foreclosure in the meantime. Also, your mortgage lender can’t use your being behind on property taxes as a reason to foreclose on the mortgage.
  • Student Loans: Generally you can stop paying on your student loan during your Chapter 13 case. This is especially beneficial if you do not currently qualify for an “undue hardship” discharge but expect to more likely do so later in your case. Ask your bankruptcy lawyer about how the law is enforced because it varies by region.

 

An Example of Surrendering Your Home Later in a Chapter 13 Case

August 26th, 2016 at 7:00 am

Here’s an example of how Chapter 13 can allow you to hold onto your home but then change your mind about it later. 

 

Our last blog post introduced the option of saving your home through Chapter 13, while keeping open the possibility of surrendering the home later if your circumstances change. 

Advantage of Keeping Your Options Open

Sometimes it’s hard to know whether hanging onto your home is worth the money and effort. For example, if you were about $10,000 behind on your mortgage and property taxes, and could get that money by borrowing from a relative or from a retirement account, would that be worthwhile? What if the home had no equity—the mortgage loan balance was higher than the value of the home? What if you were not confident you could afford to pay back that $10,000 loan? What if the main current reason to stay in the home now would no longer apply in a couple years?  

If you filed a Chapter 7 “straight bankruptcy” case you would have to make that decision quite quickly. If your mortgage lender was in the process of foreclosing your home, or was threatening to do so, a Chapter 7 filing protects your home for only about 3 months, sometimes less. You effectively have about that much time to decide whether to keep your home, and to figure out how.

And what if you don’t have any means to come up with that $10,000—no rich relative or retirement account?  What if you simply don’t have the means, even after reducing your debts as much as possible through Chapter 7, to catch up on the mortgage as fast as the mortgage lender demands?

Chapter 13 Solution

Not only does Chapter 13 give you some remarkable tools for saving your home. It often also gives you the option of later changing your mind and surrendering the home.  We’ll illustrate this in a practical way within the fact scenario presented in our last blog post. Please look at that scenario before reading further here.

Our Scenario

Going back to the hypothetical facts presented last time, you and your spouse decide to file a Chapter 13 case.  You really want to hang onto your home. Your attorney has advised you that filing a Chapter 7 case would not get you there.

It’s especially important for you and your family to be able to stay in your home for the next 3 years. That’s because you have two kids very involved in their local public high school, and absolutely want them to be able to finish there.  

You and your spouse would love to keep your home forever. But if necessary you’re willing to lose it three years from now after both kids have graduated. So you’re willing to take some risks to get there. So, even though you’re not confident that you’ll be able to keep your job, and even though you have concerns about possible upcoming medical expenses for your spouse, you are both willing to work hard and take some risks to try to keep the home for at least these upcoming 3 years.

Chapter 13 Plan

So after being fully informed by your bankruptcy lawyer, you and your spouse file a Chapter 13 case.  The following good things happen:

·         Your Chapter 13 payment plan provides that you slowly begin paying the $6,000 you’re behind on your first mortgage, with $100 monthly payments stretched out over the 5 years of your projected case. That’s much less than virtually any mortgage lender would otherwise allow. The relatively low monthly amount makes catching up easier and so more likely to be ultimately successful.  Also, it minimizes your investment in the home each month if you do end up changing your mind later.   
·         Your Chapter 13 plan similarly stretches out catch-up payments towards the $2,000 in home property tax arrearage, with payments of $50 per month. The benefits above apply here as well.
·         Your $20,000 second mortgage is “stripped” off your home’s title, because there’s no home equity securing it. You no longer have to make the monthly payments, nor ever have to catch up on the accumulated late payments. Plus with that mortgage lien off your title, you’re that much closer to building equity in your home. (Second mortgage “stripping” is only available under Chapter 13, not under Chapter 7.)
·         Your court-approved Chapter 13 plan “avoids”—removes—a $10,000 judgment lien that a creditor recently recorded against your home’s title, arising from an unpaid hospital bill. This judgment lien “avoidance” procedure can also be done under Chapter 7 in the right circumstances. But it’s all the more powerful when done in conjunction other features available only under Chapter 13.
·         The $20,000 second mortgage balance and the $10,000 judgment debt are both now treated as “general unsecured” debts. These are added to the $50,000 in other medical debts and credit card balances. So your unsecured debts now total $80,000.

What Happens to the “General Unsecured” Debts

Through your Chapter 13 plan you pay only as much of this $80,000 in unsecured debts as your budget allows. Usually, if all you can afford to do during your time in Chapter 13 is catch up on the first mortgage and property taxes (and pay the trustee’s fee and any remaining attorney fees), you would pay nothing on that $80,000.

Even when you do pay some portion of it, because your plan pays the secured debts first, the unsecured debts often receive little or nothing in the first couple years of your case. This, too, minimizes how much you pay during the early years of your case. That’s beneficial if you decide to surrender the home later.

Two Possible Endings to Our Scenario

As the Chapter 13 case plays out in this scenario, you and your spouse either succeed in making the plan payments over the months and years, or don’t. You either keep your job, or bring in a similar amount of income from another job, or you don’t. Your spouse either avoids needing a lot more medical care and piling on a lot more expenses, or doesn’t. 

If you succeed in paying as your Chapter 13 plan envisioned, you can hold onto your home permanently. By the completion of your case you will have caught up on your first mortgage and the property taxes. The second mortgage and judgment liens will have been removed from the title to your home. And whatever you haven’t paid of the remaining unsecured debts will be discharged. You will be current on your home obligations and be otherwise debt-free.

But if your income decreases or your expenses increase so that you are not able to maintain your Chapter 13 plan payments throughout the entire 5-year course of your case, at that point you could decide to surrender your home. Depending on the circumstances you may then decide to amend your payment plan to exclude the home obligations. Or more likely you would convert your case into a Chapter 7 one, discharging all your debts so that you would be debt-free within a few months of that. In the meantime, you had succeeded in holding onto your home long enough to keep one, and hopefully both, of your kids in their school through graduation.

You would have benefitted from this flexibility provided only by Chapter 13.

 

Catching Up on Your Property Taxes through Chapter 13

July 13th, 2016 at 7:00 am

If you are behind on property taxes on your home, Chapter 7 often doesn’t give you enough time to catch up. But Chapter 13 likely would.


Today we cover the 4th one of the 10 ways we listed recently that Chapter 13 helps you keep your home. When we gave the list we wrote:

4. Get Current on Past Due Property Taxes

Filing a Chapter 7 case doesn’t protect you from property tax foreclosure—beyond the four months that a case lasts. However, Chapter 13 does protect you and your home while you gradually catch up on those taxes. You do so through a court-approved payment plan that also incorporates your mortgage(s) and all other debts.

Here’s an example to show how this works in practice.

The Example

Assume that you own a home worth $225,000, with a mortgage loan balance of $200,000. Your property taxes are $1,850 per year, paid directly to your county tax assessor instead of through your mortgage holder.

For years you paid the yearly property taxes out of a combination of income tax refunds and scraped together savings. And you took cash advances on credit cards whenever there wasn’t enough money.

Then a couple of years ago you lost your job and didn’t find a new one for several months. Plus the new one is at a lower salary. So last year when it was time to pay the property taxes you’d already maxed out on credit. You couldn’t pay the $1,850 in taxes. With the payments due every month on the credit cards, the mortgage, and other bills, you couldn’t pay the property taxes this year again. So now you’re behind $3,700 plus interest.

Your mortgage lender has been after you for not paying the property taxes. You’ve managed to stay current on the mortgage, but occasionally did so paying it also through credit cards when you still had some credit available on them. The mortgage lender is now threatening to pay the property taxes and foreclose on the house because of your failure to keep current on the taxes. You’re now justifiably afraid that you’re going to lose your home.

Chapter 7 Won’t Likely Cure the Dilemma

Filing a Chapter 7 “straight bankruptcy” might help but, because of how property taxes work, possibly not help enough.

That’s because most mortgage lenders consider nonpayment of property taxes a breach of your contract with them. And that’s because the property tax creditor usually has a legal right to foreclose the property out from under them! So your lender will itself likely pay your property taxes at some point to avoid that from happening. The mortgage contract almost always allows them to do this.

Then your mortgage lender will put pressure on you to pay off the money it fronted for the taxes. It will most likely threaten to foreclose on your home to make you pay. And it will most likely follow through on that threat if you don’t pay up.

When Chapter 7 Might Help

Filing a Chapter 7 case CAN sometimes solve this problem. But only if that bankruptcy filing improves your cash flow enough so that you would have sufficient extra money to catch up on the property taxes quickly enough.

How fast? Fast enough to keep your mortgage lender happy.

The problem is not usually with the county or whatever tax authority you owe directly on the property taxes. In most places a tax foreclosure by the county or other tax authority doesn’t happen until you are behind on property taxes a number of years.

Rather the urgency is with your mortgage lender. It would prefer not to put up the money for the property taxes instead of having you do it. And then once your lender does pay the taxes, it wants you to bring the account current quickly.   

Going back to our example, if you’re behind two years of taxes, amounting to $3,700 plus ongoing interest, you and your bankruptcy lawyer would have to see how much you could afford to pay towards that after your Chapter 7 case has “discharged” (legally written off) all or most of the rest of your debts. If you can keep the property tax authority and your lender happy by catching up fast enough, Chapter 7 will have solved your problem. Your lawyer will be able to make the required calculations to advise you about this in advance of deciding which way to go.

The Additional Help of Chapter 13 “Adjustment of Debts”

If you CAN’T satisfy your mortgage lender fast enough, Chapter 13 would force your lender to let you have more time. In most cases you’d have between 3 and 5 years to catch up on the property taxes.

Stretching out the catch-up period that long reduces how much you have to pay monthly towards the property taxes. That makes catching up easier. Especially if you are far behind, it could turn an otherwise impossible situation into a workable one. Catching up the $3,700 property tax arrearage over the course of a few months could very well be impossible for you. Stretching that out over 3 or 4 or 5 years (monthly payments of about $75-$100) should be much more feasible.

 

Keeping Your Home through Chapter 13

May 16th, 2016 at 7:00 am

Chapter 13 gives you much more time to catch up on your unpaid mortgage payments. That can be reason enough choose this option.

 

Filing either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” one stops a pending home foreclosure. And they can both prevent one from begin started. Assuming you’re behind on your mortgage and want to keep your home, whether you should file under Chapter 7 or Chapter 13 depends on how far behind you are and how much help you need in catching up.

Protection through the “Automatic Stay”

Filing either a Chapter 7 or Chapter 13 case immediately imposes the “automatic stay” on your mortgage lender, and on all your other creditors. This is the federal law which stops and prevents (“stays”) virtually all collection actions against you or your property, including a home foreclosure.

Under Chapter 7 this “automatic stay” protection only lasts a short time, usually about three months or so. And the mortgage lender can even ask the bankruptcy court to cut short that protection.

Buying Some Time with Chapter 7

As we said in our last blog post, Chapter 7 usually lets you keep your home if you are current or not too far behind on your mortgage payments.

Most people who file a Chapter 7 case gain some monthly cash flow because they no longer have to pay some of their debts. Consider the Chapter 7 option if you want to keep your home and after filing bankruptcy you would have enough cash flow to make both your regular mortgage payments plus enough extra to be able to catch up on the late payments fast enough to satisfy your particular mortgage lender(s).

How much time you’ll have depends on the particular lender. About a year is a very rough estimate, but this varies widely so discuss this with an experienced bankruptcy lawyer to get a better idea what your lender will allow in your circumstances.

Buying a Lot More Time with Chapter 13

Instead of buying just a matter of a few months, Chapter 13 can usually give you as much as five years to catch up on your back mortgage payments.

If you are in foreclosure or anticipating that you will be soon, you could easily be tens of thousands of dollars behind on your mortgage. You may also be behind on property taxes and/or homeowner association assessments. You likely need as much time as possible to catch up on these. Stretching the repayment period out as long as five years can greatly reduce what you have to pay each month to catch up. This can make keeping your home much more feasible.

Not Need Lender’s Consent

Under Chapter 7 you are largely at the mercy of your lender regarding how much time you’ll have to get current. So you have to pay the necessary amount each month to accomplish that.

Under Chapter 13 you don’t rely on the cooperation of your mortgage lender. As long as you follow the law in how you and your lawyer put together the Chapter 13 payment plan, and then comply with that plan, the lender has little choice.

It can keep your feet to the fire to make sure you comply with the plan you propose and that the court approves. If you don’t pay as the plan says, you can still lose your home. But you’re much more in the driver’s seat, following a financial plan based on what your budget says you can afford to pay.  

Creative Flexibility

Not only do you get much more time to catch up on your mortgage(s), you also often get a fair amount of flexibility in how and when that happens in relation to your other pressing debts.

For example, let’s say you are also behind on your vehicle loan or child support. Depending on the amount of equity in your home and other factors, you may be able to pay such other even more urgent creditors ahead of or at the same time as you’re catching up on the mortgage.

Sometimes you may even be able to catch up on your mortgage in part or in full through a refinancing of your home. That refinancing may even be purposely delayed a couple years to allow for more equity to build up in your home.

Chapter 13 case comes with other kinds of flexibility. Your payment plan can from the outset reflect future anticipated increases in income or available funds, such as after a child starts school and a spouse begins making an income. That can make the payment plan easier in the meantime.

When financial circumstances change midstream, your Chapter 13 plan can usually be adjusted to reflect changes in your income and expenses.

These various kinds of flexibility make more likely that you can keep your home in the long run.

The Flexibility to Safely Change Your Mind

Your financial or life circumstances could change a year or two after filing your Chapter 13 case so much that you end up deciding you don’t want to keep the house after all.

For example you may get a new job out of the area, or a child may graduate from the local high school and leave home, so that keeping the home is no longer appropriate or necessary.

Under Chapter 13 you can change your mind and sell or surrender the home then, in a more financially protected way.  You can do so by amending the terms of your Chapter 13 payment plan, by converting your case into a Chapter 7 one to discharge any remaining debts, or even by simply dismissing (closing) your case if you don’t need its benefits any longer.

 

A Fresh Start with a Forbearance Agreement

January 20th, 2016 at 8:00 am

Whether you’re about to fall behind on your mortgage or have already done so, a forbearance agreement avoids foreclosure while you catch up.


Quick Definition

A forbearance agreement gives you short-term relief to deal with a temporary period of financial hardship. Your mortgage lender agrees, either in advance or after the fact, to accept a period of reduced or suspended monthly payments in return for your agreement to return to full monthly payments and catch up on the missed payments within a certain length of time. The lender agrees to not foreclose—to “forbear” from foreclosing—as long as you make the agreed regular and catch-up payments. You are given this grace period to bring the mortgage current and then return to making just the regular monthly payments.

Compared to Mortgage Modification

Forbearance agreements are usually much easier to qualify for and quicker to negotiate with the lender. After all you are not changing most of the terms of the mortgage—almost always the regular monthly payment, the interest rate, and the length of the overall mortgage don’t change. You’re just forgiven for a period of time of being in default on the payments, and are then required to catch up relatively quickly. A forbearance agreement does not make your mortgage more affordable long-term, but rather gets you back in good graces with the same mortgage you signed up for originally.

In contrast, a mortgage modification changes the terms of the mortgage to make it more affordable long-term, by reducing the monthly payment. But besides being relatively difficult to qualify for and process, mortgage modifications usually don’t reduce the principal amount you owe but rather make it somewhat easier to pay, with a reduced interest rate or a longer term (for example, 40 years instead of 30). See our last blog post for more about mortgage modifications.

The Relatively Rare Solution

So forbearance agreements are only appropriate for that relatively rare situations  in which you only miss a few months of mortgage payments and then get to a point in which you can not only afford the regular payments again but also pay a significant amount extra each month to catch up on the missed payments within a relatively short period of time.

The amount of time to catch up varies with each mortgage lender and the circumstances of each case. Periods of 6 to 10 months are common, seldom more than a year.

Take the example of a mortgage with a monthly payment of $1,500. If the homeowner missed 5 payments because of a job loss, he or she would be $7,500 behind on the mortgage. After the lender starts a foreclosure, the homeowner finds steady employment and negotiates a forbearance agreement to catch up on that $7,500 over the next 10 months. He or she would have to make the regular $1,500 monthly payment plus $750 extra every month for 10 months. During those 10 months the foreclosure would be put on hold. At the end of that time the homeowner would be current on the mortgage and the foreclosure would be canceled.

Forbearance Agreements and Bankruptcy

For most people, coming up with the extra monthly amount—the $750 in the above example—is impossible because of other debts. So forbearance agreements are often used together with Chapter 7 “straight bankruptcy.” Paying the catch-up payment can be much more feasible if you don’t have to pay most or all of your other debts at the same time.

Forbearance agreements do not usually work with Chapter 13 “adjustment of debts” payment plans. Instead Chapter 13 is often used instead of forbearance agreements if you simply don’t have the cash flow to make the catch-up payments that your lender would require of you. Chapter 13 can usually allow you to catch up over a much longer period of time—3 to 5 years instead of a year or less with a forbearance agreement. Stretching out the catch-up payments under a Chapter 13 plan lowers that monthly amount significantly. Chapter 13 may also allow you to stop payments on a second (or third) mortgage, give you longer to catch up on any back property taxes or homeowner association dues, and deal better with income tax liens or other obligations tied to the home. We’ll address the Chapter 13 option more thoroughly in our next blog post. 

 

Chapter 7 and Chapter 13–Resolving Your Property Tax Debt

October 19th, 2015 at 7:00 am

Bankruptcy helps with your property taxes either by writing off your other debts or by buying you more time to catch up.  

 

Discharge Your Other Debts with Chapter 7 So You Can Pay Your Property Taxes 

If you’ve fallen behind on your property taxes, presumably your income has not been enough to meet your expenses plus payments on your other debts. Sometimes just writing off your other debts would give you enough financial breathing space so that you can catch up on your property taxes.

Find out from your attorney how much time you would have to catch up on your property taxes. You often have quite a long time. But the rules can be very strict about property tax foreclosures, so be absolutely clear about what the true deadlines are.

Some tax agencies will set up a monthly payment plan with you. Find out if that would be available to you and if you could afford the payments once you discharged your other debts.

In these situations a Chapter 7 “straight bankruptcy” may give you all the help you need.

Use the Special Powers of Chapter 13 to Take Care of Property Taxes

But you may not have enough time to pay the taxes before the tax foreclosure.

Or even if the tax foreclosure isn’t right around the corner, you may need more help for the following reasons:

  • Even if your county or tax agency provides the option of an installment payment plan, you can’t afford the monthly payments even after discharging your other debts.
  • A payment plan is not offered by your tax agency.
  • The collection process has gone too far for you to be eligible for a payment plan.
  • You were already in a payment plan but could not pay it as agreed.
  • Your mortgage lender is requiring you to bring the taxes current more quickly, usually on top of initiating its own foreclosure or threatening to do so.

Under the Chapter 13 “adjustment of debts” type of bankruptcy, you can catch-up on your property taxes over a period of as long as 5 years. This reduces each month’s installment payment, making it more manageable. And during that time the tax agency would not be able to foreclose or take any other collection activity—saving you both worry and those extra costs—as long as you fulfill the terms of the court-approved Chapter 13 plan.

Chapter 13 also often can enable you to pay your back property taxes more quickly than if you were in a Chapter 7 case, saving you interest and penalties. This is possible because your plan can delay paying other important creditors, such as the IRS or a spousal support enforcement agency, while you first catch up on the property taxes.

And perhaps of greatest practical importance, Chapter 13 is usually a much better option if you are also behind on your mortgage payments. Most of the time if you are behind on property taxes that means that you are also behind on your mortgage(s). Chapter 13 can be an excellent way to catch up on your mortgage because it also allows you to stretch out your mortgage catch-up payments for up to 5 years. During this time, as long as you meet the terms of your court-approved plan, you and your home will be protected from foreclosure or any other collection efforts by your mortgage company.

 

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